Saturday, January 27, 2007

This week the Warren Group posted Massachusetts housing market data for December and all of 2006 (link here). For the month of December they report SFH prices down 8%, and condo prices down 2%. For the year, SFH prices declined 5.8% and condo prices declined 1.2%.

MAR reported their numbers on Thursday. Below are their numbers plotted relative to recent years. NOTE: MAR incorrectly reported (and all other sources I have found failed to correct) that December condo prices were up 2% yoy. In fact, according to the data available on the MAR website (link here), condo prices were DOWN 1.8% yoy. The prices were up 1.9% over 2004 levels, which is where they likely made their mistake.

SFH prices for December were down ~5% from 2005 levels, and down ~2% from 2004 levels. They are still up ~8% from 2003 levels. This is the 5th consecutive month that prices have been below 2004 levels.

Condo sales in December strengthened slightly relative to the recent trends. SFH sales continue to deteriorate.

Both SFH and condo inventories showed their smallest yoy gains since early 2005. Importantly, inventory is still climbing (though much more slowly) and is well above recent year levels. The spring market inventory levels will be interesting to watch. We could see the first yoy decline in inventory levels for SFHs in the coming months.

Months Inventory continues to run at high levels as inventory levels out and sales deteriorate.

I'll put together the year end numbers in a future post and try to make some early projections for 2007.

Wednesday, January 17, 2007

Prompted by a frequent commenter, I downloaded condo stats from the Warren Report (link here) for all of 2005 and 2006. For this analysis I included all Boston neighborhoods, as well as Cambridge, Brookline, and Somerville (my "Urban Core Condo Market"). I then excluded West Roxbury, Roslindale, Hyde Park, and Mattapan from this analysis because these are the four smallest condo markets, each has the same or more SFH sales as condos, and I wanted to focus on condo-dominated neighborhoods. (Note: The Warren Report defines Boston as Beacon Hill, Back Bay, North End, South End, so I don't have breakouts for these neighborhoods)

First up, lets look at condo sales in 2005 and 2006 for these markets. To aid comparisons, I've labeled the % change comparing 2006 to 2005.

Only two markets showed an increase in sales, Dorchester (up 33.9%) and Somerville (up 17.7%). In every other market sales declined (sometimes precipitously), though the largest market (Boston) shows a modest decline (-1.4%). The total number of sales in these market declined 8.4% YOY.

Here are the median condo price figures for 2005 and 2006.

The only markets with an increase in median condo prices are Dorchester (up 5.5%) and JP (up 0.3%). Every other market is down YOY. On a sales weighted average basis, prices in these markets are down 2.3% YOY.

Interpret as you will. I doubt this will change anyone's mind about the state or trajectory of the market. The purpose is to provide a complete analysis, using year over year numbers and including all relevant neighborhoods, as a basis for discussion.

Saturday, January 13, 2007

With the new year upon us, many "interested parties" are calling for a bottom in the Massachusetts housing market. I think their pronouncements are very premature. Keep in mind these points:

1. To real estate professionals, the bottom in a market occurs when SALES bottom, not when prices bottom. Their livelihood depends on turnover (commissions), not prices.

2. Affordability in MA is near record lows (see recent post). There is very little room for upside price movement.

3. Catch-22. Dropping prices will increase affordability and potentially increase the pool of buyers. But, stabilization in prices is needed to motivate and reassure buyers. This process will continue to play out with declining prices and sales.

4. Credit standards are tightening. An unprecendented number of mortgage holders will face rate adjustments and payment shock in the coming year.

5. The building cycle is still bringing new product to market as demand continues to dissipate.

6. Markets take a LONG time to turn. Think about how long the anticipated peak in the market took to come to fruition.

7. Psychology has only started to turn negative. At a market bottom, the psychology of fear will dominate greed. Sellers will capitulate.

8. Supply and Demand. "Months Inventory," the number of months it would take to sell all existing inventory at the current sales pace, continues to increase. This means more houses are coming on the market than are selling. By this metric, the market has not stabilized, it continues to weaken. Here is months inventory for the last 4 years:

Last November there was ~8 months of inventory. This November, ~12 months. Think the trend is decelerating? Here is the year over year change in months inventory over the last three years, along with a six month moving average.

How important is this metric to prices? Plotted below is the historical relationship between Months Inventory (averaged over each year) and Appreciation Rates (averaged over each year) for the past 14 years.

Looking for an early sign that prices will firm? Wait for "Months Inventory" to show a meaningful and sustainable year over year decline. Until then, all pronouncements of a bottom in PRICES are fantasy.

Tuesday, January 02, 2007

Last week both the Warren Group (Globe link here, Herald link here) and MAR (link here) released November market reports for Massachusetts. Plotted below are the MAR price, sales, and inventory numbers relative to historical trends.

Typically, the most informative single metric is "months supply," which indicates how long it would take to sell all inventory on the market at the current sales pace.